News / Economy

Egypt to Pay $1.5B in Arrears to Foreign Oil Firms

People shop at Al-Ataba, a popular market in downtown Cairo, Nov. 11, 2013.
People shop at Al-Ataba, a popular market in downtown Cairo, Nov. 11, 2013.
Egypt promised on Wednesday to pay $1.5 billion of the $6 billion it says it owes oil firms, hoping the announcement will revive confidence in an economy battered by nearly three years of political upheaval.
Egyptian officials speaking at an investment conference also sought to ease mounting concerns over everything from legal uncertainty to the black market for foreign currency.
“There is approval to pay $1.5 billion,” Prime Minister Hazem el-Beblawi told the gathering, designed to lure investment from Gulf Arab states and businessmen. He said the arrears had discouraged investment in the critical energy sector.
The oil-producing countries rallied behind Egypt after the army ousted President Mohamed Morsi of the Muslim Brotherhood in July, pledging billions of dollar in financial support.
Political uncertainty since a popular uprising ousted autocrat Hosni Mubarak in 2011 has frightened away tourists and investors, cutting tax revenues and foreign currency inflows.
That has increased pressure on the government to get oil firms investing again in extraction and exploration and attract both Arab and Western investors.
Egypt has repeatedly promised to repay arrears to the oil companies following Morsi's removal, which was welcomed by Gulf states fiercely opposed to the Muslim Brotherhood.
Finance Minister Ahmed Galal, addressing the same conference, said the central bank would supply the dollars needed to pay the firms.
Financial disclosures by firms including BP, BG Group, Edison SpA and TransGlobe Energy show Egypt owed them more than $5.2 billion at the end of 2012.
In the week after the army takeover, Saudi Arabia, Kuwait, and the United Arab Emirates pledged a combined $12 billion in grants, interest-free loans and oil products.
Now Egypt is hoping Gulf businessmen at the Cairo conference will also pump cash into the country, a U.S. ally which has a peace treaty with Israel and controls the Suez Canal.
Investment Minister Osama Saleh told Reuters Egypt hoped to attract $4 billion-$5 billion in direct foreign investment in the year to the end of June 2014.
Egyptian government officials speaking at the conference said the country was on track to implementing a political roadmap that will lead to free elections and bring stability.
But authorities have not managed to bring calm to the streets, where Morsi supporters stage regular protests against what they call a military coup that has brought widespread human rights abuses.
The government says the Brotherhood is a terrorist group and a threat to national security.
Political support from Gulf states has helped Egypt withstand criticism from Western allies who have questioned the country's democratic credentials since the army takeover.
“How many fish?”
Central Bank Governor Hisham Ramez said he expected more Gulf aid, but had no figure in mind. “Actually, we're not only counting on aid. We're counting on investments to come in.”
Asked if he anticipated more aid from Saudi Arabia, the biggest Gulf economy, finance minister Galal told Reuters: “I cannot tell beforehand. You go fishing, how many fish are you going to catch?”
Egypt badly needs private capital. Foreign direct investment fell to $3 billion in the 2012/13 financial year, which ended in June, compared with more than $10 billion a few years ago.
The United Arab Emirates appears especially enthusiastic for its companies to launch or resume projects in Egypt.
An informed source close to major Abu Dhabi investment companies told Reuters nearly $5 billion had been committed in loans and investments over the last four months and there was still scope for further investment in Egypt.
Kirill Dmitriev, CEO of the Russian Direct Investment Fund, a $10 billion Kremlin initiative, said he was encouraged by the UAE's presence at the conference.
“We believe Egypt is becoming an attractive investment destination,” he told Reuters.
UAE Minister of State Sultan Al Jaber said sectors under discussion include agriculture, oil, gas and renewable energy.
“We can't today define the size of investments. This we consider the beginning of a new page,” he said.
“The most important thing we'd like to see happen is the topic of the laws needed to assure investors and protect their capital ...”
The government is preparing a law to reinforce the legal standing of past contracts with the state, Mohamed Abazeid, an adviser to Egypt's investment minister, told the conference.
The business environment in Egypt has been clouded by court cases that have challenged past contracts concluded by the state. These have included rulings ordering the renationalising of public sector businesses sold off in the Mubarak era.
Qatar, which supported the Muslim Brotherhood, has been reluctant to invest in Egypt since Morsi's overthrow.
Although Gulf Arab support is vital, Egypt is under pressure to come up with a long-term plan to revive the economy.
The army-installed government launched a 29.6 billion Egyptian pound ($4.3 billion) stimulus package this year after Gulf countries pledged aid.
The economy grew a meager 2.2 percent in the year to June 30, far too slow to make an impact on youth unemployment estimated at over 20 percent. Beblawi said the government aimed for economic growth of 3.5 percent in the current fiscal year.
In a boost to the government officials trying to sell Egypt to Gulf Arab investors, Egyptian tycoon Naguib Sawiris, whose family controls the Orascom corporate empire, said he would invest $1 billion in the country in the first quarter of 2014.
He told Reuters the investment would focus on construction, real estate, agriculture and microfinance.
But it will take more than one heavy hitter to fix Egypt's finances.
The Egyptian pound is being propped up by central bank dollar sales, introduced a year ago to help counter a run on the currency as the plunge in foreign investment and tourism caused a sharp fall in foreign reserves.
Reserves, which stood at $36 billion before Mubarak fell, have been under pressure ever since. They totalled $18.59 billion at the end of October and Ramez told the conference they had dipped slightly last month. The November figure is due soon.
Ramez said the black market for the Egyptian pound  would “not last long”, as two market sources said the currency had weakened against the dollar because of importer demand.

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